The rating agency, Moody has predicted a slowdown in the Indian economy for the year 2019. The report launched by Moody's Investors Service on Thursday said that the Indian economy is expected to grow at a pace of 7.4 percent in 2018 but the growth is likely to come down to 7.3 percent in the next year.
The agency attributed the reason to the fall in the domestic demand on higher borrowing cost due to rising interest rates. The post demonetisation base effect was witnessed in the half (January-June) of 2018 where the economy registered a growth of 7.9 percent, the report titled 'Global Macro Outlook 2019-20' highlighted.
The agency further added that the cost of borrowing has already gone up on higher interest rates, it predicts that Reserve Bank of Indian is expected to steadily raise the benchmark rate through 2019, which will eventually affect the domestic demand negatively.
Moody's said, "These factors will limit the pace of the Indian economy's growth over the next few years, with real GDP growth of 7.3 percent in 2019 and 2020, from around 7.4 percent in 2018."
The rating agency highlighted the greatest downside risk to India's growth prospects in the concerns growing out of the banking sector. The Indian Banking sector is reeling under more than Rs 10 lakh crore of bad loans and non-performing assets (NPAs).
The rating agency said, "The impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households' consumption basket, and will weigh on households' capacity for other expenditures. Borrowing costs have already risen because of tightening monetary policy."
Moody's said the government is taking necessary steps to arrest the downfall in the financial sector but in the short term, the credit growth remains to be slow. "Downside risks from a prolonged liquidity squeeze for non-bank financial institutions, which could lead to a sharper slowdown in their credit provision, remain," the report added.
The Moody's have also predicted a slowdown in the global economic growth in 2019 and 2020 to remain 2.9 percent from an estimated 3.3 percent in 2018 and 2017.